Genentech Sales Reps Face Hospital Bans Over a Wholesale Change

Ascension Health, which is one of the nation’s largest operators of hospitals and clinics, has banned Genentech sales representatives from visiting its 1,900 hospitals and clinics around the country after the drugmaker changed distribution for three big-selling cancer medicines earlier this week.

The move is causing an outcry from hospitals and academic medical centers around the country that claim the sudden shift will force them to pay tens of millions of dollars more each year in higher drug costs and could delay patient care. Ascension executives charged Genentech is making it harder to provide health care, according to an email sent to employees and confirmed by a source familiar with the situation. The ban was first reported by Modern Healthcare.

Several other hospitals and academic medical centers are considering the same step, according to sources. “We’re evaluating all options and that is one of the options we are considering,” says Steve Rough, director of pharmacy at the University of Wisconsin Hospital and Clinics. “We would restrict their access to our [health care] providers, so it would be harder for them to promote their products… Any way that we can move [Genentech] market share without compromising patient care, we will do so.”

The retaliation follows a decision by Genentech to use specialty distributors which, in this case, are actually divisions of the same wholesalers that have already been distributing Avastin, Rituxan and Herceptin. Genentech, which is a unit of Roche, says this will be more efficient because just five distribution centers will handle the drugs, instead of 80. But hospitals and academic medical centers say these divisions do not offer the same discounts.

The distribution change is “a shockwave to pharmacy directors and purchasing managers,” Jody Hatcher, chief executive officer at Novation, a group purchasing organization that represents hospitals, said on a conference call with media this week. The company estimates the change will cost its customers, which number nearly 2,000 nationwide, about $50 million annually.

A Genentech spokeswoman says the switch was made to improve inventory management, although she acknowledged the drug maker also discussed concerns about counterfeiting risks and potential drug shortages with some customers. As for any ban on sales reps, she adds that “relationships with customers are extremely important to us” and it is important for us to “engage with doctors.” The drug maker is also working with its distributors to educate hospitals.

She would not discuss the extent to which Genentech may benefit financially from the changes. Novation execs suggested Genentech is paying lower fees to the six wholesalers that run the specialty units, such as AmerisourceBergen. A spokeswoman declined to comment. We asked the other distributors for comment, including McKesson, and will update you accordingly.

In highlighting the additional costs, the hospitals are attempting to inject the issue into the national discussion about the rising cost of prescription medicines and health care, in general. The three drugs generated more than $7 billion in sales last year in the U.S. Hatcher maintained the distribution change may eventually result in “potential price increases” somewhere in the health care chain.

“This decision creates an unnecessary burden on everyone in the healthcare system except for Genentech and the selected distributors,” wrote the board of the Hematology/Oncology Pharmacy Association, a professional society for pharmacists, in a letter to Genentech.

The University of Utah Health Care, which operates four hospitals, will have to absorb about $500,000 in higher costs, says Erin Fox, director of its Drug Information Service. “We just have to eat that increased cost as we won’t receive additional payments from Medicare or insurance,” she says, adding that insurance contracts generally do not factor price discounts into reimbursement rates.

Fox also notes that hospitals will have to incur additional inventory costs to stock up on the medicines, since shipping may take longer depending upon location of the facility. This is also likely to affect patient care, she says, because some clinics cannot afford to keep large amounts of drugs on hand, which may cause delays in treatment for new patients or unexpected situations.

A spokeswoman for one Genentech distributor, Cardinal Health, notes that specialty distributors usually ship small parcels with overnight delivery. This is typically done for medicines that need special handling, such as refrigeration, or expensive pharmaceuticals, which customers do not typically hold in stock. She declined to discuss terms of its arrangement with Genentech.

The Genentech spokeswoman says the hospitals should not be surprised. “This is not a new model,” she says. “It is well established across the industry.” For instance, she says that three other Genentech drugs, all of which were approved over the past two years, have been available to hospitals and academic medical centers only through specialty distributors.